South Asia's strong growth of 6.0 percent in 2024 is primarily fueled by robust economic expansion in India.
The World Bank has revised its projections for the Indian economy, forecasting a growth rate of 7.5 percent in 2024, up by 1.2 percent from earlier estimates. The latest South Asia Development Update by the World Bank indicates that South Asia, driven primarily by India’s robust growth and recoveries in Pakistan and Sri Lanka, is expected to achieve a strong growth rate of 6.0 percent in 2024, with projections of 6.1 percent growth in 2025.
“In India, where a significant portion of the region’s economy lies, output growth is anticipated to reach 7.5 percent in FY23/24 before settling at 6.6 percent in the medium term, with services and industry sectors expected to maintain strong performance,” stated the report. Bangladesh is projected to witness a 5.7 percent increase in output in FY24/25, though economic activity may be constrained by high inflation and trade restrictions.
Pakistan’s economy, after a contraction in FY22/23, is expected to rebound with a growth rate of 2.3 percent in FY24/25 as business confidence improves. Similarly, Sri Lanka is forecasted to experience output growth of 2.5 percent in 2025, supported by modest improvements in reserves, remittances, and tourism.
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Martin Raiser, World Bank Vice President for South Asia, highlighted the region’s promising growth prospects in the short term but cautioned against fragile fiscal positions and increasing climate-related challenges. He emphasized the need for policies aimed at enhancing private investment and fostering employment growth to bolster resilience.
Franziska Ohnsorge, World Bank Chief Economist for South Asia, noted that the region is underutilizing its demographic dividend, potentially missing out on significant economic gains. Ohnsorge suggested that if South Asia could leverage its working-age population to the extent seen in other emerging markets, its output could increase by 16 percent.
In India, economic activity exceeded expectations in the fourth quarter of 2023, with a growth rate of 8.4 percent year-on-year, fueled by rapid increases in investment and government consumption. Recent survey data indicate continued strong performance. Financial conditions remain accommodative, with domestic credit issuance growing by 14 percent year-on-year in December 2023.
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Despite elevated food price inflation due to a weak harvest, overall inflation has remained within the Reserve Bank of India’s target range. Financial soundness indicators have improved, with the nonperforming loan ratio declining to 3.2 percent and regulatory capital exceeding requirements.
Looking ahead, India’s output growth is projected to reach 7.5 percent in FY2023/24 before moderating to 6.6 percent in FY2024/25. Robust growth in services and industry sectors, alongside fiscal consolidation efforts, are expected to support long-term economic stability and growth.
